Avon ProductsAVP

Morningstar Rating

Stock Research and Analysis

by Erin Swanson, CFA

Avon Products is realizing benefits from its turnaround efforts while also generating solid sales and operating income growth. The company has not, however, been completely immune to the head winds created by volatile currency exchange rates and the Read more

Bulls Say

Avon's multilevel marketing model requires little capital investment, enabling the firm to generate exceptional returns on invested capital, which well exceed our cost of capital estimate.

Management recently raised its estimates for the annual cost savings from its restructuring initiatives to more than $430 million, up from previous forecast of $300 million. In addition, Avon's efforts to simplify its product mix and improve its sourcing capabilities are expected to generate another $450 million of annual cost savings beginning in 2010.

Increased emphasis is being put on enhancing the value provided to Avon's base of independent distributors, through improved compensation, shorter selling cycles, and online tools.

Avon was granted the first direct selling license by the Chinese government in February 2006, which creates an opportunity to propel sales growth in this large emerging market. Read more

Bears Say

Unfavorable foreign currency movements remain a head wind for Avon. For instance, Avon's first-quarter 2009 sales plummeted 13% over last year's quarter, but grew 3% when excluding the impact of foreign exchange rates.

Avon's international expansion got ahead of itself, forcing the firm to take a step back and re-evaluate its operations and product structure. This has been a costly process, with around $500 million of expenses incurred through year-end 2008.

The full benefits from Avon's restructuring initiatives could take longer to realize than management originally forecast.

The firm's efforts to drive product innovation and spur sales growth in its more mature markets, such as the U.S., have been damped by deteriorating macroeconomic conditions. Read more

Strategy

Since 2005, Avon's strategic focus has centered on its turnaround efforts to drive product innovation, increase targeted advertising spending, and reduce layers of management. In addition, the firm is Read more

Management

Sound corporate governance practices are ingrained in Avon's culture. The investments made over the past several years, while CEO Andrea Jung has been at the helm, point to the fact that ensuring long-term value creation for shareholders is a priority Read more

Profile

Avon Products is a multilevel marketing company, selling products through its 5.8 million active representatives in 66 countries and territories. Avon's product mix consists Read more

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